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Following is the speech by the Financial Secretary, Mr John C Tsang, on "Hong Kong's Role in China's 12th Five-Year Plan - Opportunities for Canadian Business" at the Economic Club Luncheon in Toronto, Canada today (July 12, Toronto time):
Albert (Frank), Peter (Lawler), Bob (Armstrong), distinguished guests, friends, ladies and gentlemen,
Good afternoon.
It is my great pleasure to join you here for lunch in beautiful Toronto.
It is always good to be here in Toronto. In some ways, this city seems like a second home to me.
I have had the opportunity of visiting Toronto on a number of occasions, for business and for pleasure. I was here for the G20 Summit just over a year ago. That was strictly business, of course, and the atmosphere felt so different then. I am glad to see the real Toronto again.
A few years ago, I was here purely for pleasure, as father of the groom. My son married a wonderful girl from Toronto. Her family still lives here. The wedding reception took place not too far from here at the Royal York Hotel. I return this time for my first visit to Toronto as a proud grandfather. Perhaps this explains some of the extra grey hairs on my head!
Of course, our family's story is not a unique one. Although many thousands of miles (7 800 miles/12 600 kilometres) separate Hong Kong and Canada, relations between our two communities are especially strong and go back many decades. If you include Hong Kong people with Canadian citizenship, almost 300 000 Canadian citizens live in Hong Kong and more than 100 Canadian firms have offices in our city.
The Canadian Chamber of Commerce in Hong Kong is one of the largest of its kind outside North America. It has over 1 100 members. Here in Toronto, Hong Kong has an Economic and Trade Office. All these help keep two-way channels of communication between us wide open.
This is important because we all know that the secret to a successful long-distance relationship is good communications as well as shared values and mutual respect and understanding.
Over the years, our strong cultural, economic and financial links have stood the test of time, not least through the recent global financial crisis.
Today, I want to communicate to you some of the ways that businesses can strengthen even further this enduring relationship. I can assure you that this is a great time to take a fresh look at the opportunities in Hong Kong, in Mainland China and throughout Asia.
This brings me to the main theme of my talk: Hong Kong's Role in China's 12th Five-Year Plan - Opportunities for Canadian Business.
The National 12th Five-Year Plan was adopted in March this year. The Plan provides a clearly defined blueprint for the economic and social development of our nation up to 2015.
For the first time, The Plan devotes a full chapter to Hong Kong and nearby Macao. This is significant because it underscores Hong Kong's role in, and opportunities arising from, our nation's development.
On July 1, Hong Kong celebrated its 14th Establishment Day Anniversary. This also happens to coincide with Canada Day. That makes it a double celebration for the large Canadian community in our city, including members of my family.
There have been significant developments since Hong Kong's reunification with Mainland China in 1997. However, economic and social stability and continuity have been the cornerstones of our enduring success.
For example, an independent judiciary continues to underpin our common law legal system. Our legal system is based on the English system and similar to that in Canada. We continue to maintain our own low and simple tax regime, our own financial system and our own unique style of capitalism.
Hong Kong is ranked number one in the world for economic freedom by Canada's Fraser Institute and by the Heritage Foundation in the US. Canada is also ranked in the Top 10. This reflects our shared economic values and commitment to maintaining open markets and free trade.
Hong Kong's business-friendly environment is built on free flows of capital, information and ideas. Our liberal immigration policies encourage a free flow of talent. All this is guaranteed under the "One Country, Two Systems" formula for our reunification with the Mainland.
While Hong Kong has retained its unique characteristics, our city's inclusion in the 12th Five-Year Plan highlights our close integration within our nation. This is a two-way street. On the one hand, Hong Kong benefits greatly from being part of the world's fastest growing large economy. At the same time, our city is a well-established international business and financial centre in its own right. As such, Hong Kong contributes to Mainland China's economic reforms and opening up to the rest of the world. Hence, Hong Kong contributes to the economic prosperity of our nation.
The 12th Five-Year Plan sets out specific areas where Hong Kong can contribute most effectively to our nation's overall development. Not in any particular order, these areas are: as an off-shore centre for business using the Mainland currency, the Renminbi; as China's global financial centre; as an international asset management centre; as an international centre for trade and as an international shipping centre. The Plan also underscores the Central Government's commitment to maintaining the long-term prosperity and stability of Hong Kong. All this is solid proof that Hong Kong is not on the sidelines of China's economic development; we are right in the thick of the action.
Importantly, the Plan also pledges support for Hong Kong's emerging sectors and for closer co-operation between Hong Kong and the Mainland.
So, what does this mean in terms of "Opportunities for Canadian Business"?
First and foremost, it means that businesses in Hong Kong must innovate and upgrade their products and services. This is the best way to take full advantage of our closer integration with the Mainland.
One area is financial innovation. China's rapid growth has been a mainstay of Asia's economic recovery. It has also given our nation more financial clout on the international stage. However, the Mainland maintains a closed capital account and imposes restrictions on investment. Here enters Hong Kong.
In 2010, Canadian direct investment in Hong Kong was valued at almost CAD$6 billion (CAD$5.78 billion). That is about 72 per cent higher than that for Mainland China and more than double the amount invested in Japan.
As China's global financial centre, Hong Kong has been a testing ground for the liberalisation of the Mainland currency, the Renminbi. Today, Hong Kong is the offshore centre for Renminbi banking, Renminbi trade settlement and the issuance of Renminbi bonds.
Canadian firms can raise capital for their Mainland operations by issuing Renminbi bonds in Hong Kong. Last year, fast food giant McDonald's became the first foreign company to issue Renminbi-denominated bonds. Then follow Caterpillar and others. A variety of enterprises, including the Asian Development Bank, have also since followed suit. I encourage Canadian firms to test the waters in this area.
Canadian firms doing business in the Mainland can also take advantage of our Renminbi experience by using Hong Kong as the centre to settle trade using Renminbi. Renminbi trade settlement was introduced by the Central Government in 2009 and expanded last year. Canadian companies can now settle their Mainland trade in Remninbi with 20 Mainland provinces and cities.
Another opportunity for Canadian companies is to list on Hong Kong's stock market. Once again, our biggest advantage is the China factor.
The great thing for overseas companies listing in Hong Kong is that they can attract wealthy institutional investors from Mainland China and throughout Asia. At the same time, a Hong Kong listing helps firms to raise their profile in the Mainland and promote their brands across our nation's vast markets. We offer attractive valuations while maintaining robust listing rules. For example, companies must comply with a three-year "profit test" before they can launch an Initial Public Offering (IPO).
In each of the past two years, Hong Kong has led the world in funds raised through IPOs. Last year, IPO funds raised in Hong Kong reached US$58 billion (CAD$55.7 billion). This included SouthGobi Energy Resources which is owned by Canada's Ivanhoe Mines. The company raised about US$440 million (CAD$423 million) through its secondary listing in Hong Kong. Other resource firms from Russia, Brazil and Switzerland have also listed in Hong Kong over the past year or so. Hong Kong is particularly attractive for overseas resource companies because our nation is a major consumer of natural resources, and places like Canada are major producers.
Beyond the resource sector, companies from Britain, France, Japan and most recently Italy have listed in Hong Kong. They cover a broad range of sectors from financial services to fashion.
Our stock market is already the second largest in Asia by market capitalisation and the sixth largest in the world. At end-May, market cap was around US$2.8 trillion (CAD$2.7 trillion).
I have already mentioned some of our shared values in terms of providing a stable business-friendly environment. These include our tried and trusted legal system, open capital markets and free flows of information and talent. Our low taxes include salaries tax capped at 15 per cent, and profits tax at 16.5 per cent. There is no capital gains tax in Hong Kong, no inheritance tax, no VAT and no GST. We don't even have any duty on wine.
Last month, Hong Kong and Canada began considering an avoidance of double taxation agreement. This would further streamline the taxation procedures between us and boost profits for businesses and investors.
Another way for Canadian businesses to benefit from Hong Kong's close integration with Mainland China is through our unique free trade pact. We call this the Mainland-Hong Kong Closer Economic Partnership Arrangement, or CEPA for short. CEPA was launched in 2004 to help open up Mainland markets to Hong Kong firms.
The best part is that CEPA is nationality-neutral. Overseas companies, including Canadian firms incorporated in Hong Kong, can enjoy the same advantages as local firms. This includes the "first mover" advantage, tariff-free entry for goods produced in Hong Kong to the Mainland and enhanced access to markets in 44 services areas.
It is one way for Canadian firms to add value to their operations and reach increasingly affluent Mainland consumer markets.
Ladies and Gentlemen, these are exciting times for our city, for our nation, and for our overseas investors.
Last year, our economy grew by a healthy 7 per cent. It expanded 7.2 per cent in the first quarter of this year compared to the same period in 2010. We have forecasted a full year GDP growth of between 5 and 6 per cent this year.
Our bilateral trade with Canada expanded almost 13.5 per cent last year compared to 2009. Trade between us reached CAD$4.4 billion in 2010. Also last year, more than 10 per cent of total trade between Canada and Mainland China was routed through Hong Kong. This trade amounted to some CAD$3.7 billion.
Given the deep connections between Hong Kong and Canada, our shared values and mutual respect and understanding, Hong Kong will continue to be a highly effective springboard for Canadian firms with an eye on the vast markets in Mainland China and in the Asia time zone.
I hope that you will come and visit us in Hong Kong soon. That way, you can see for yourselves the huge opportunities for Canadian business in our neck of the woods, and help take our long-distance relationship to a whole new level.
Thank you very much.
Ends/Wednesday, July 13, 2011
Issued at HKT 07:30
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